Areas of Specialization: IRA Rollovers

Baby boomers account for one-third of the total U.S. population. A large portion of the $3 trillion in IRAs and $8.6 trillion in pension plans is held by baby boomers. As they retire, it is expected that $500 billion per year will be rolled over from pension plans into IRA accounts.

The Internal Revenue Code allows employees to rollover distributions from a qualified plan, 403(b) plan or 457 plan into an IRA or to another eligible retirement plan, for that matter. To be eligible for rollover, a distribution must be on account of retirement, attaining age 59 ½, death or disability and may not be a part of a series of substantially equally period payments, a loan payment, or a required minimum distribution.

The rollover can be paid to you and you have the option of, within 60 days, rolling over the payment to your own IRA. This type of rollover is subject to a mandatory 20 percent federal income tax withholding at the time of distribution. If instead the distribution is a “direct rollover” paid directly to your IRA custodian (or eligible retirement plan) there is no mandatory withholding.

According to the IRS, if the employee dies, the surviving spouse is eligible to rollover pension benefits “in the same manner as if the spouse were the participant.” This means the surviving spouse can rollover the benefits into a plan in the deceased spouse’s name, with the surviving spouse as beneficiary or into an IRA in the surviving spouse’s own name.

As of January 1, 2007, the Pension Protection Act of 2006 allows non-spouse beneficiaries to elect to have pension benefits directly rolled over into an “inherited” IRA. This inherited account is a new IRA that is specifically designed to accept these types of distributions. To be eligible for this benefit, the non-spouse beneficiary must be named, benefits payable to “the estate” do not qualify. Also, the payment must be made directly to the inherited IRA and not the individual.

The Pension Protection Act also allows an income tax exclusion of up to $100,00 per year for distributions from IRAs for qualified “charitable distributions” made during 2006 and 2007 by plan owners who are at least 70 ½ on the date of the distribution to the charity. This distribution may include the required minimum distribution for that year.

Because our lead advisor, Mr. Ely, has taught continuing education classes to attorneys and accountants on the subject of IRA distributions and rollovers and also written commercially sold software and contributed to books written on these subjects, he is well qualified to help clients with the technical aspects of IRA rollovers and distributions. However, according to PlanSponsor.com, baby boomers reported that “asset protection was the overwhelming driving factor in finding a financial firm to handle their rollover dollars.” Therefore, we realize that making sure you don’t run out of money in retirement is more important than having the technically ability to allow clients to legally stretch out IRA benefits over their lifetime and even over the lifetime of the next generation. That is why we rely on the precepts of Modern Portfolio Theory to diversify portfolios across securities, that do not behave alike, in an effort to lower portfolio risk without sacrificing return.